During the recession between 2007 and 2009 most of

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Unformatted text preview: RAM in 2010 will be 44% at most. (IBK securities, 2009) The most important factor concerning supply comes from DRAM providers. The profits of DRAM providers suffered after the recession in 2007; the operating profit margins of the companies are negative, except for Samsung and Hynix. (%) 20 0 (20)(40)(60). (80). (100)(120)Samsung Samsung 56nm 56nm (6F2) (6F2) 1Gb 1Gb DDR3 Hynix 54nm 1Gb Elpida 65nm (6F2 shrink ver) 1Gb Micron 68nm (6F2) 1Gb DDR3 Hynix 66nm 1Gb Samsung 68nm (6F2) 1Gb Elpida 65nm (6F2) 1Gb Elpida 70nm 1Gb Figure 3-8 Operating Profit Margin Of DRAM Chips Based On Contract Price in 2009 (Source: BNP Paribas estimates, 2010) As profitability has decreased, the number of providers has reduced from twenty in 1995 to 7 in 2009. Table 3-3 DRAM industry consolidation: excluding pure foundry players 2009E 2008 Rank 1995 1996 1997 1998 1999 2000 2001 1 Samsung Samsung Samsun Sarmun Sanun Mon Saun HyunrK Mco Samsung Hynix Epida Epida ~ ECE 2N -tchi yna io Mron Hywdai Hyundai tnineon t > 9 7' nsung SanWun 3 titacai 5 Toshba LG Sem aon Miron LG Semion infineon NEC Elpida Qimonda Nanya LG Sem n TI TI Mi subish Hitachi Mitlsubishi Nanya Powerchip PrnoS Mtubishi Toshiba Toshba MoseWdeic MoselVteic ProMOS 7 9 sh rI 11 IBM 12 ie h 13 k 14Motrl eM nrneen Mosew-Vdelc IBM ne - 0 Powerchip Vanguard GaMm OkIi B Nanya OKI Vagad Vanguard Mitsubish Fujitsu Vanguard Ol WB > oe~iei 15 Nippon Seel Motorola Mosel-Vielic Nanya Powerchip Moset-Vitec Vanguard Nippon Steel Powerchip Nippon Steel SANYO 19 Sharp SANYO SANYO Nippon Steel Matsushta LM Nanya 17 m Etron Source: UBS, 2009 Even though the exit barrier from the DRAM industry is quite high, DRAM providers could not endure high pressure resulting from loss and highly fluctuating market demand and prices. To overcome this crisis, DRAM providers, except Samsung and Hynix, the two top rankers in the DRAM market, tried to have a tight partnership establishing Taiwan Memory Company (TMC). In 2008, most of the providers were eager to establish a partnership (TMC) with a subsidy form the Taiwanese government. But, establishing TMC was unsuccessful due to the complex interests in technology and the difficulty in providing subsidy due to political issues. As a result, the Taiwanese companies which had a severe loss of profit are in trouble now. It is very difficult for Promos one of the Taiwanese DRAM providers to recover the business since it sold the equipment to Powertech and TSMC. Profitability of Promos was minus 430% in the 1' quarter of 2009. Also, Powerchip faced serious financial loss resulting from debt. Other Taiwanese companies such as Nanya, Winbond, and Innotera have the same kinds of issues. Micron and Elpida also had serious losses in 2009 as shown in figure 3-7. Economy of scale is the core issue in the DRAM industry due to its high fixed cost. The fact that most of the providers suffer from loss of profitability is closely related to revenue. 25% *Samsung 20% 10% -.. 5% . 0%- -20% - --. Nanya -Qinonda -25% 0 500 1,500 1,000 2,000 Figure 3-7 DRAM industry-relation between average quarterly revenues (US $m) and operating margin (%), Q102-Q209 (Source: UBS, 2009) All things considered, the supply of DRAM will be very limited as a result of decrease in 37 supply capability in the industry. In addition, the industry will be restricted by M&A. 3-4-3 Demand Analysis The PC market is the most important factor in deciding DRAM demand since the PC market has almost 80% among total demand. HDTV and Handset are expected to grow to be other important applications in terms of bit demand. Table 3-4 DRAM bit demand split by application Application 2006 2011 E Growth Desktop 27% 18% -9% Notebook 15% 29% 14% Server 8% 8% 0% Upgrade Module 25% 18% -7% Graphics 5% 4% -1% DSC 2% 1% -1% Game Console 3% 1% -2% HDTV 2% 5% 3% Handset 3% 6% 3% Other 10% 10% 0% Source: UBS, 2009 Even though the segment of new applications which adapts DRAM is growing, the computer is and will be the main driver. Recently, mobile IT products market such as smart phone is growing but DRAM is not mainly used in those applications. Therefore the computer industry is the crucial point to be considered when analyzing DRAM demand. 38 PC sales and megabyte per PC has been growing even though the growth rate has fluctuated. WSet Unit: 000 Ow Unit - Growth Rate 40000 MB I Set N 3500 - Growth Rate - 60% 3,000 300,000 50% 2500 3s0,000 40% 2S0,000 2,000 200,000 1,500 30% 150,000 20% 1,000 100,000 5 10% 0 0% 94 96 98 00 02 04 06 08 10F 12F 02 03 04 05 06 07 08 09 IOF Figure 3-10 PC sales and megabyte per set (Source: IDC, 2009) As shown in the figure 3-10, PC sales are increasing but PC prices have decreased as well. Also, the decrease in price of DRAM by chip shrinkage offsets the increase in megabyte per set. In 2009, Windows 7 was introduced and it triggers the sales of PC and megabyte per set. 12%10%8%6%4%2%0%- -2%1007 3007 1008 3Q08 1009 Figure 3-11 Rate of supply to demand (Source: IDC, 2009) 39 3Q09 1Q1OF 3Q10F Even though the supply side is weak due to decrease in capital expenditure, market demand does not continue to exceed supply. In other words, the price of DRAM is strong compared...
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This note was uploaded on 01/22/2014 for the course BUAD 497 taught by Professor Degravel during the Fall '07 term at USC.

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